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GAO: Small Businesses Lose Out on Deals

By Hope Yen
Associated Press
March 31, 2006

Small businesses lose out on hundreds of millions of dollars in Energy Department contracts each year because the government often gives no-bid work to large firms on flimsy grounds, congressional auditors say.

A report by the Government Accountability Office, obtained Thursday, looks at small business contracting practices at the department, whose $22.8 billion in annual awards for research, nuclear weapons maintenance and environmental cleanup make it the largest civilian contracting agency.

The report says the agency failed to meet small business contracting goals of 5.5 percent or lower in four of the last five years due to lack of controls, poor planning and questionable assumptions that smaller firms couldn't handle the jobs.

The Energy Department "is clearly constrained by the department's traditional reliance on a limited group of large firms and universities to manage high-cost projects in which public safety and national security are important concerns," says the 39-page report, scheduled to be released next month.

The audit comes amid increased scrutiny of federal contracting, particularly in the Hurricane Katrina response and rebuilding effort. Earlier this month, the GAO found the government wasted millions of dollars on 13 major Katrina contracts most of which were awarded based on limited bids that went to large firms with extensive government ties.

"This administration gives big businesses all the breaks and gives small businesses the shaft," said Sen. John Kerry, D-Mass., the top Democrat on the Senate Committee on Small Business and Entrepreneurship, when asked about the report.

"We need to break down big contracts so small businesses can get a piece of the federal pie," he said. "This is evidence of a systematic failure by the Bush administration to look out for small businesses, let alone level the playing field."

Craig Stevens, an Energy Department spokesman, said the agency has been working hard to consider small businesses for contracts to the extent it can. In some areas, such as laboratory and research contracts, the work "just isn't conducive to small business," he said.

"We believe we are taking significant strides in encouraging and retaining small business owners in the work of the department," Stevens said.

According to the GAO report, Energy officials gave small firms work mostly in dwindling, noncore areas such as legal services and construction, rather than research and waste cleanup, where most of the contract dollars lie.

Small firms also were typically given subcontracts, which are labor-intensive but much less profitable because of the cuts taken by the large prime contractors.

As a result, the agency missed contracting goals in four of the last five years, leading to missed opportunities for small businesses totaling more than $970 million, auditors said. The exception was 2003, when the Energy Department beat its goal, resulting in an $84.2 million "surplus" in contracts for small business.

Meanwhile, most of the core work was awarded to large entities such as the University of California system, which operated the Los Alamos National Laboratory under a no-bid contract for decades until it was reopened for bidding last year following security lapses. In rebidding, the university won the contract again.

In recent years, about one-third of total contracts were handed out on a no-bid or limited competition basis, according to the Federal Procurement Data System government database, although that number is improving.

The GAO noted that the Energy Department had made strides in awarding prime contracts to small businesses. But in many cases, the department said it did not consider the goals a priority, citing concerns about small firms' performance while providing little information or evidence to document why.

"If DOE can combine its small business improvement efforts with a clear strategy for achieving its annual goal, ... and with program evaluations that help to identify problems, DOE can more credibly demonstrate that even if it continues to fall short of its prime contracting goal it has done all it possibly can," the report said.

Other findings:

The agency's outreach programs have failed to achieve clear results. For example, the pairings of large and small firms in a mentor-protege program increased from five in 2002 to 48 in 2005, but only one participating small business has subsequently received a prime contract from the Energy Department.

The agency often cited short-term obstacles for not considering small firms such as the threat of potential legal challenges from larger companies rather than devising longer-term structural changes to meet goals.



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